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A new hope for New Zealand first home buyers?

When it comes to buying real estate in Auckland, discussions and opinions have been swaying toward the negative side – particularly when it comes to first home buyers. This is especially noticeable when you consider that, according to figures from QV, the average value of dwellings in the city rose by 22.5 per cent in the year to December 2015. This has pushed it to $933,264, a figure that would be understandably daunting to anyone entering the market.

The inelastic real estate supply has struggled to meet population growth, investor confidence and a strong surge of people migrating into Auckland.

There are a variety of factors that have led to these tough market conditions. One of them is something that has occurred for a little while now, which is the undersupply of homes for sale in the city.

Auckland Council Chief Economist Chris Parker explores this issue thoroughly, commenting that the inelastic real estate supply has struggled to meet population growth, investor confidence and a strong surge of people migrating into Auckland.

“For other New Zealanders, and in particular younger generations, the prospect of being able to own their own home near where they work and play in Auckland is at risk of slipping from their grasp,” he says, indicating that the forecast could be bleak if things don’t change.

However, it’s not yet time to throw in the towel. Reports show that things could be turning around in 2016.

A change in the tides

According to a 12 January release by QV, first home buyers have been making a gradual but healthy return to the market in both Auckland and the rest of the country. There are a few factors behind this that have given this group of buyers that extra push of momentum.

One of the new major rules dictated that residential property investors in Auckland would need a 30 per cent minimum deposit to take out a home loan.

As with the case in Australia, rapid investment activity has pushed out many first home buyers and driven prices up. With this in mind, the Reserve Bank of New Zealand (RBNZ) looked to target investors in order to stimulate cooling in the marketplace.

On 13 May 2015, the organisation announced that new lending restrictions toward these group of buyers would be enforced. One of the new major rules dictated that residential property investors in Auckland would need a 30 per cent minimum deposit to take out a home loan.

Furthermore, financial institutions have been forced to hold more capital against investor credit, further tightening that financial pipeline for potential investors. These restrictions took effect from 1 October onward, which, looking at the stats, has had a visible impact.

From observing QV data, the proportion of Auckland purchases by first home buyers rose noticeably around this period, occupying 23 per cent of all property sales by December 15. Simultaneously, the percentage of investor buying homes for sale dropped, landing at around 24 per cent by this same period.

Lending conditions are relatively favourable to first home buyers in the country.

Where to now?

With the official cash rate falling to 2.5 per cent in December, lending conditions are relatively favourable to first home buyers in the country. Furthermore, the squeezing out of competition from investors could very well continue, giving them more room to shop for real estate in New Zealand as prices cool. If indeed the market trends as forecast, these group of buyers could return to the scene in full force over this year and the next.

Do you feel like it could be your time to own your first home? Get in touch with friendly team at Ray White. We’ve got a vast network of offices across the country and can help find you a property for sale to suit your lifestyle and needs.